COVID-19 Announcement
RE: ESSENTIAL SERVICES

Defend-It Legal Services Professional Corporation is an essential service, available for business, while operating in accordance with Order issued by the Premier of Ontario, and is practicing and encouraging social distancing measures for the safe health of all persons. Learn More [61] Essential services include professional and social services that support the legal and justice system;
[65] Professional services including lawyers and paralegals, engineers, accountants, translators.
Order of the Premier of Ontario | March 23 2020 8:00PM

 


Can an Interest Charge Be Added After a Contract was Made?

Interest Clauses Must Be Agreed to When Making a Contract. A Business is Unable to 'Sneak' Interest Charges Onto an Invoice Without Prior Agreement. Interest Must Be Shown as an Annual Rate and Be Under Sixty (60%) Percent.
A Helpful Guide on How to Determine Whether An Interest Charge Is Legal and Enforceable

Contract Containing Unlawful Interest Rate Charges

Sometimes a business will add an interest charge onto an invoice without previously discussing the potential interest charge with the customer. This unilateral, meaning single-sided, decision to charge interest without a prior understanding and mutual agreement is improper and unenforceable. Simply said, a business is unable to charge interest unless the right to charge interest was agreed to when the deal was made and attempts to add an interest charge after the deal was made, such as providing first notice of an applicable interest onto an invoice, is without binding effect. This was stated in the case of King Road Paving and Landscaping Inc.  v. Plati, 2017 ONSC 557 at paragraphs 79 to 88.

What Happens If An Interest Rate Is Shown Only As a Monthly Rate Rather Than Annualized Rate?

If An Interest Rate Is Shown Without An Annualized Rate, Then the Interest Charge Becomes Void.

For most contracts involving the sale of goods and services (i.e.  other than mortgages) where an interest rate is stated as applying to late payment or overdue accounts will require that the annual interest rate be shown.  The mandate to show an annual interest rate is found in s.4 of the federal Interest Act, R.S.C.  1985, c.  I-15.  In circumstances where an interest rate that is less than annual is shown, such as a two (2%) percent monthly interest charge,  without also stating the annual interest rate, such an agreement is void and unenforceable.

The Interest Act also governs the interest rate that applies if an agreement for interest is made but the rate of interest undeclared.  In such a situation, the Interest Act statutorily establishes a five (5%) annual rate.  Counter-intuitively, many perceive that where a lesser rate is stated without the annualized rate such as the example of two (2%) percent mentioned above, this unenforceable rate should be substituted with the statutory five (5%) percent rate; however, the law will not operate in such a manner as to amend or adjust the defective rate of interest stated in the contract.  The law within the Interest Act only establishes the rate at five (5%) percent when interest was agreed to but the rate unstated.  Accordingly, in a situation where a rate is stated without the annualized interest rate, any interest becomes disallowed.

What Is the Highest Allowable Interest Rate?

Charging Sixty (60%) Percent Interest or More Is Illegal.

Even if stated properly shown as an annual interest rate, when an interest charged calculates to sixty (60%) percent or beyond is contrary to s.347 of the Criminal Code of Canada, R.S.C.  1985, c.  C-46 and is illegal. As an illegal interest charge, and where such is contrary to the Criminal Code, persons charging such exorbitant may be punished with up to five (5) years in jail when a charge is prosecuted as an indictable offence or six (6) months imprisonment and/or twenty five thousand ($25,000) dollar fine when prosecuted as a summary conviction offence.

Furthermore, fees and other sums charged by pay day loan businesses are also regulated whereas such fees are often interest charges in disguise and such interest charges in 'disguise' may amount to criminal activity if calculations show a rate beyond beyond the maximum allowed.  These payday or short-term loan businesses are regulated per the Payday Loans Act, 2008S.O.  2008, Chapter 9.  The decision in the case of The Director v. The Cash Store, 2014 ONSC 980 has helped define some of the restrictions.

Summary Comment

Attempts to add an interest charge onto an invoice without first having first arranged an agreement to charge interest is improper and unenforceable.  Furthermore, an interest clause must show the agreed upon interest rate as an annual rate, or include an annualized rate if a monthly rate is shown, and the annualized rate must be less than sixty (60%) percent.

Defend-It Legal Services provides affordable legal services for clients in Pickering, Courtice, Whitby, Uxbridge, Port Perry, among other places!

Fill out the form below to Arrange for a Consultation

Do not send confidential information through this website form.  This website is not intended to provide advice specific to your particular circumstances.  Use this website form only to arrange an introduction with a representative to discuss your particular circumstances.  Your IP Address is: 40.121.136.229
Defend-It Legal Services
Professional Corporation

600 Granite Court, Suite 201
Pickering, Ontario,
L1W 3Y8

P: (289) 275-3513
E: admin@defendit.ca

Business
Hours:

Monday: 9:00AM – 5:00PM
Tuesday: 9:00AM – 5:00PM
Wednesday: 9:00AM – 5:00PM
Thursday: 9:00AM – 5:00PM
Friday: 9:00AM – 5:00PM

By appointment only.
Please call for details.

Serving:

Pickering
Whitby
Claremont
Toronto
Port Perry
Scarborough
Richmond Hill


Markham
Courtice
Ajax
Brooklin
Oshawa
Newmarket
and much more

Logo of Defend-It Legal Services Professional Corporation

SSL Secured Trust https://defendit.ca


Animated Spinner